2016 (9) TMI 492 - HC - Service Tax

High Court Overturns Tribunal Order, Rejects Retrospective Effect, Sets Aside Refund Claim Decision

Principal Commissioner Of Service Tax, Delhi-I Versus T.T. Limited

The High Court set aside the tribunal's order directing the adjudicating authority to sanction the respondent's refund claim, stating that the authority ... Correctness of Tribunal's order - Refund claim - eligibility - Notification No.41 of 2007, as amended by later Notifications Nos.17/2008, 3/2008 and 33/2008 - export of manufactured cotton yarn - Held that:- the assessee’s contention that the subsequent notifications were merely clarificatory and must be held to relate back or apply from the date the base notification came into force, cannot be accepted. The CESTAT reasoning is therefore incorrect. As far as the assessee’s submission that the adjudicating authority could not have increased scope of remand is concerned, whilst the submission has some merit, this Court notices that at least in two places, where the Commissioner remitted the matter for verification, the scope of the remit was widened. Having regard to the fact that exemption and refund applications are to be construed strictly and narrowly which has been dealt with [Refer Commissioner of Central Excise, New Delhi vs. Hari Chand Shri Gopal 2010 (11) TMI 13 - SUPREME COURT OF INDIA], it cannot be said that the adjudicating authority lacked primary jurisdiction merely because of a circumscribed demand as being contended by the assessee. This contention too therefore fails. Therefore, the impugned order is unsustainable. - Decided in favour of Revenue Issues:1. Correctness of tribunal's order directing the adjudicating authority to sanction the refund claim.2. Interpretation of notifications regarding eligibility for service tax refund.3. Scope of remand by the commissioner and the adjudicating authority's jurisdiction.4. Application of clarificatory notifications and their retrospective effect.Issue 1: Correctness of tribunal's order directing the adjudicating authority to sanction the refund claim:The revenue appealed against the tribunal's order directing the adjudicating authority to sanction the respondent's refund claim after verifying the documents. The tribunal held that the adjudicating authority could not adjudicate upon the refund claim afresh and should only verify the documents as directed by the Commissioner (Appeals). The CESTAT reasoned that the adjudicating authority had no right to re-examine the refund claim without issuing a fresh show cause notice. The CESTAT directed the adjudicating authority to sanction the refund claim within 90 days of the receipt of the order. The High Court set aside the impugned order, stating that the adjudicating authority exceeded the scope of the remand and violated the law by revisiting the eligibility of the refund claim.Issue 2: Interpretation of notifications regarding eligibility for service tax refund:The main contention was regarding the eligibility for service tax refund based on the interpretation of amending notifications. The revenue argued that the amending notifications clearly stated that the amendment would come into force upon publication in the Official Gazette, and the benefit of refund notifications applied only to services made after their publication. The respondent relied on previous judgments to argue that the notifications should be construed liberally and that subsequent notifications were clarificatory. The High Court analyzed the notifications and held that the subsequent notifications were not merely clarificatory, ruling out their retrospective application.Issue 3: Scope of remand by the commissioner and the adjudicating authority's jurisdiction:The respondent contended that the adjudicating authority exceeded the scope of the remand by revisiting the eligibility of the refund claim. The High Court acknowledged that the scope of the remit was widened in some instances by the Commissioner. While the Court recognized the need to construe exemption and refund applications strictly and narrowly, it held that the adjudicating authority did not lack primary jurisdiction despite the widened scope of the remand.Issue 4: Application of clarificatory notifications and their retrospective effect:The High Court examined the application of clarificatory notifications and their retrospective effect. It distinguished the present case from previous judgments and held that the subsequent notifications, which added services to the base notification, were not clarificatory. The Court emphasized that for a notification to be clarificatory, there should be an enunciation in the original or base notification itself, which was lacking in this case. The Court rejected the argument that subsequent notifications should relate back to the date of the base notification and held that the CESTAT reasoning on this matter was incorrect.In conclusion, the High Court allowed the appeal, set aside the impugned order, and disposed of the pending application.